SEC Company Response from Groupon, Inc. (GRPN) (CIK 0001490281) (GRPN) — Jun 26, 2013
Groupon, Inc. (GRPN) (CIK 0001490281)
Date: June 26, 2013 · CIK: 0001490281 · Accession: 0001490281-13-000026
AI Filing Summary & Sentiment
Referenced dates: May 31, 2013
Letter
Division of Corporation Finance Filed February 27, 2013 Form 10-Q for the Quarter Ended March 31, 2013 Filed May 9, 2013 File No. 1-35335
Dear Mr. Spirgel:
Set forth below are the responses of Groupon, Inc. (the “Company”) to the comments of the Staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) contained in the Staff’s letter to the Company, dated May 31, 2013, relating to the Company’s Form 10-K for the year ended December 31, 2012, filed with the Commission on February 27, 2013, and Form 10-Q for the quarter ended March 31, 2013, filed with the Commission on May 9, 2013. For convenience of reference, the text of the comments in the Staff’s letter has been reproduced in italicized type herein.
Form 10-K for the Year Ended December 31, 2012
Overview, page 30
Comment No. 1
Please revise to provide investors with a more comprehensive analysis of the North America and International segments as seen through management’s eyes. The discussion and analysis should provide investors with sufficient information to understand the material factors impacting the historical results along with the trends and uncertainties that may impact your future operating results and financial position. For example, we note that during your 2012 fourth quarter earnings call, you cited the following: (1) your results reflect the deliberate and aggressive focus on growth of your platform and segment market share as well as your willingness to trade off short-term profitability; (2) your expectation that operating margins will improve in 2013 as you fine tune your take rates and automate manual processes that will significantly improve your cost structure going forward; and (3) your reasons for reducing local margins as a means of marketing.
CHI:2749370.1
Mr. Larry Spirgel
June 26, 2013
Page 2
Response:
We will revise our Overview section of the MD&A in future filings to include a more comprehensive analysis of the North America and International segments, and will include additional information regarding the material factors impacting the historical results, along with the trends and uncertainties that may impact our future results. See Exhibit A for an example of how those revisions would have appeared (under the subheading “Factors Affecting our Performance” in the Overview section) had they been made in our Form 10-Q for the quarter ended March 31, 2013 (new text is underscored and deleted text is shown as a strike-through). However, the actual disclosures provided in our future filings may differ from these revisions depending on the material factors that impact our results for the applicable periods, as well as our assessment of the trends and uncertainties that may impact our future results at the time of such filings.
International, page 38
Comment No. 2
We note that although total revenue in 2012 increased over 2011 in your International segment, the majority of the growth was attributable to the first two quarters of 2012, which was followed by a significant decline in revenues in the last two quarters of 2012, continuing into the first quarter of 2013. You attribute the decline in revenue in the last quarter of 2012 to reductions in the percentage of gross billing that you retained from sales in your Local category. You also refer, on page 53, to the challenging economic conditions in Europe. In addition, in your March 31, 2013 Form 10-Q, you disclose that the decrease was also due to decreased gross billings. Please expand this discussion to provide a more detailed analysis of the factors that contributed to the decrease in revenue during the last half of 2012 and first quarter of 2013 and whether you expect this trend to continue in the future.
Response:
In future filings, we will provide a more detailed analysis of increases or decreases in revenue, as compared to the corresponding period of the prior year, by discussing relevant factors such as increases or decreases in gross billings and the portion of billings that we retain after paying the merchant. The discussion of these factors will be provided for individual categories (i.e., Local, Goods, and Travel and Other) to the extent that a particular category (or categories) is responsible for the increases or decreases in the period. We will also continue to evaluate whether sequential improvements or declines in the results of our operations represent a currently known trend that is reasonably likely to have a material effect on our financial condition or results of operations in future periods. However, we note that the significant sequential declines in total revenue and of third party revenue from the Local category of our International segment during the second half of 2012 did not indicate a known trend that was expected to have a continuing impact in future periods at the time we filed our Form 10-K. Those sequential declines did not continue into the following quarter, as the $261.8 million of revenue from our International segment for the quarter ended March 31, 2013 was a decrease of only
Mr. Larry Spirgel
June 26, 2013
Page 3
0.4% from the prior quarter and third party revenue from the Local category of our International segment increased by $11.0 million from the prior quarter.
See below for an example of how the revisions discussed above would have appeared had they been made in our Form 10-Q for the quarter ended March 31, 2013 (new text is underscored and deleted text is shown as a strike-through). However, the actual disclosures provided in our future filings may differ from these revisions depending on the material factors that impact our results for the applicable periods, as well as our assessment of the trends and uncertainties that may impact our future results at the time of such filings.
“International segment revenue decreased by $58.9 million to $261.8 million for the three months ended March 31, 2013, as compared to $320.7 million for the three months ended March 31, 2012. The decrease was primarily due to a $57.4 million decrease in revenue from our Local category, which was due to resulted from an $86.5 million decreased in gross billings and a reduction in the percentage of gross billings that we retained after deducting the merchant’s share to 41%lower margins on deals for the three months ended March 31, 2013, as compared to 46% in the prior yearduring the current period. The decrease in gross billings was attributable to decreased units sold in the Local category of our International segment as compared to the prior year period. The decrease in the percentage of gross billings that we retained during the three months ended March 31, 2013, as compared to the prior year period, reflects the overall results of individual deal-by-deal negotiations between our sales personnel and our merchants. We believe that those deal margins were negatively impacted by lower demand from merchants in our International segment to offer deals on our platform as compared to the prior year period. The percentage of gross billings that we retain can vary significantly from period-to-period.
In our International segment, revenue from transactions in our Goods category are primarily presented on a net basis within third party revenue, as we have not typically been the merchant of record for those transactions outside of the United States.”
Regarding the Staff’s comment about the reference to challenging macroeconomic conditions in Europe on page 53 of our Form 10-K, we note that the reference to those conditions was provided as an example of one of the qualitative factors that we considered in evaluating whether to conduct Step 2 of the goodwill impairment test for our EMEA reporting unit, which had a negative book value at the time of the impairment test. That discussion of macroeconomic conditions in EMEA was not characterized as one of the factors that contributed to declines in revenue in our International segment during the second half of 2012. As noted above, a variety of factors contributed to the sequential decline. We did not cite the poor economy in Europe as one of those factors as we are unsure of the impact that macroeconomic conditions in EMEA may have had on our International segment revenue throughout 2012 and the first quarter of 2013.
Comment No. 3
In your fourth quarter 2012 earnings call and related earnings release, you cited several factors that affected revenue growth, including the increase in global units (surpassing the 50
Mr. Larry Spirgel
June 26, 2013
Page 4
million unit mark in the fourth quarter of 2012), substantial growth in mobile transaction activity, the launch of new merchant services, and the increase in your virtual deal inventory. Consistent with our previous comment, disclose and quantify each material factor that contributed to the increase or decrease in revenue and whether they are attributable to changes in prices, volume, amount of goods or services being sold, or to the introduction of new products and services.
Response:
In future filings we will expand our discussion of the material factors that we believe contributed to increases or decreases in revenue for the period. However, in many cases we are unable to separately quantify the impact of each of those factors on our revenue. For example, we believe that many customers who previously purchased our deals through our email distributions now use our mobile application to browse for and purchase deals. We are unable to quantify how our mobile growth contributed to the increase in our revenue because we do not know what the purchase levels would have been had those customers been limited to our other distribution channels (i.e., email and our websites) to purchase our deals. Additionally, we believe that offering more deals to our customers by increasing the number of deals in which the merchant partner has a continuous presence on our websites and mobile applications by offering vouchers on a rolling basis for an extended period of time (sometimes referred to as our “virtual deal inventory,” “pull marketplace,” or “deal bank”) was one of the factors contributing to our revenue growth in North America. However, we are unable to quantify that impact because doing so would require us to know what our revenue would have been had we offered fewer deals to customers. As each deal we run generates a unique amount of revenue and the mix of deals offered changes every period, it is not possible to reasonably estimate how increases in our virtual deal inventory has impacted our revenue growth.
As noted in the Staff’s comment, our fourth quarter 2012 earnings call and earnings release cited the increase in global units (surpassing the 50 million unit mark in the fourth quarter of 2012), substantial growth in mobile transaction activity, and the increase in our virtual deal inventory as factors that affected our revenue growth. However, while our earnings release stated “Groupon launched a number of merchant services in 2012 to strengthen relationships with local businesses, including Breadcrumb and Payments,” the launch of those services was not cited as a factor affecting our revenue growth for the current period in either our earnings release or earnings call. Rather, page 37 of our Form 10-K states “Payment processing revenue was not significant for the year ended December 31, 2012, and we do not expect it to be significant for the foreseeable future.” This disclosure was also included on page 36 of our Form 10-Q for the quarter ended March 31, 2013. In future filings, we will expand this disclosure to refer to point of sale revenue (i.e., revenue from our Breadcrumb offering) in addition to payment processing revenue to clarify that neither of those merchant services has begun to generate significant revenue.
Comment No. 4
Mr. Larry Spirgel
June 26, 2013
Page 5
Explain how your virtual deal inventory works, how it has transformed customer search experience or engagement, and how it has impacted revenue growth. Tell us when the revenue recognition threshold is met (i.e., if a minimum number of customers purchasing a given deal is required to exceed a predetermined threshold).
Response:
As discussed in response to Comment No. 3 above, virtual deal inventory represents deals in which the merchant partner has a continuous presence on our websites and mobile applications by offering vouchers on a rolling basis for an extended period of time. This pull marketplace enables our customers in North America to search for specific types of deals (e.g., steakhouse, pizza, massage, nail salon, golf lessons, yoga) on our websites and mobile applications. These ongoing deals work no differently from deals that we run for shorter periods of time, except with respect to the timing of payments to merchants. As disclosed on page 46 of our Form 10-K, we generally remit payments to the merchant on an ongoing basis throughout the term of the offering for deals that are offered for an extended period. Additionally, while we believe that offering more deals through our pull marketplace is one of the factors that has contributed to our revenue growth in North America in recent periods, we are unable to separately quantify that impact as discussed under Comment No. 3 above.
In prior years, before we had established a significant customer base, our deals often specified a predetermined threshold of customer purchases that had to be met before the vouchers for that deal could be redeemed (i.e., “tipping point deals”). For deals with a tipping point provision, the customer’s credit card was not charged and no revenue or other amounts were recorded in the consolidated financial statements unless the specified threshold was met. Given the growth of our customer base in recent years, such tipping point provisions are rarely requested by our merchants and the number of such deals has been insignificant in recent periods. Additionally, we have not offered deals with tipping point provisions through our pull marketplace. We have continued to include the disclosure that we do not recognize revenue before “the number of customers who purchase a given deal exceeds the predetermined threshold (where applicable)” solely because this policy had relevance to the prior year comparative financial statements. However, we intend to remove the disclosure about meeting a predetermined threshold from our revenue recognition policy in future filings because it is no longer applicable.
Non-GAAP Financial Measures, page 46
Comment No. 5
We note your statement that “When evaluating our performance, you should consider operating income (loss) excluding stock-based compensation and acquisition-related expense (benefit) net as a complement to other financial performance measures, including various cash flow metrics...” Additionally, in your most recent earnings call, you provided advice “to think about cash flow trending similarly with CSOI, or operating income less stock-based compensation, and with any increase in capex offset largely by working capital.” Since you
Mr. Larry Spirgel
June 26, 2013
Page 6
appear to use CSOI as a liquidity measure, please reconcile this non-GAAP measure to the most comparable liquidity measure under GAAP or advise.
Response:
We use operating income (loss) excluding stock-based compensation and acquisition-related expense (benefit), or “CSOI,” as a measure of the Company’s operating performance and not as a measure of liquidity. CSOI is a non-GAAP measure that comprises the consolidated total of the segment operating income (loss) of our two segments, North America and International. While we ac
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CORRESP 1 filename1.htm SECresponseletter62413clean June 26, 2013 BY EDGAR AND HAND DELIVERY Mr. Larry Spirgel Assistant Director Division of Corporation Finance U.S. Securities and Exchange Commission 100 F Street, NE Mail Stop 3720 Washington, DC 20549 Re: Groupon, Inc. Form 10-K for the Year Ended December 31, 2012 Filed February 27, 2013 Form 10-Q for the Quarter Ended March 31, 2013 Filed May 9, 2013 File No. 1-35335 Dear Mr. Spirgel: Set forth below are the responses of Groupon, Inc. (the “Company”) to the comments of the Staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) contained in the Staff’s letter to the Company, dated May 31, 2013, relating to the Company’s Form 10-K for the year ended December 31, 2012, filed with the Commission on February 27, 2013, and Form 10-Q for the quarter ended March 31, 2013, filed with the Commission on May 9, 2013. For convenience of reference, the text of the comments in the Staff’s letter has been reproduced in italicized type herein. Form 10-K for the Year Ended December 31, 2012 Overview, page 30 Comment No. 1 Please revise to provide investors with a more comprehensive analysis of the North America and International segments as seen through management’s eyes. The discussion and analysis should provide investors with sufficient information to understand the material factors impacting the historical results along with the trends and uncertainties that may impact your future operating results and financial position. For example, we note that during your 2012 fourth quarter earnings call, you cited the following: (1) your results reflect the deliberate and aggressive focus on growth of your platform and segment market share as well as your willingness to trade off short-term profitability; (2) your expectation that operating margins will improve in 2013 as you fine tune your take rates and automate manual processes that will significantly improve your cost structure going forward; and (3) your reasons for reducing local margins as a means of marketing. CHI:2749370.1 Mr. Larry Spirgel June 26, 2013 Page 2 Response: We will revise our Overview section of the MD&A in future filings to include a more comprehensive analysis of the North America and International segments, and will include additional information regarding the material factors impacting the historical results, along with the trends and uncertainties that may impact our future results. See Exhibit A for an example of how those revisions would have appeared (under the subheading “Factors Affecting our Performance” in the Overview section) had they been made in our Form 10-Q for the quarter ended March 31, 2013 (new text is underscored and deleted text is shown as a strike-through). However, the actual disclosures provided in our future filings may differ from these revisions depending on the material factors that impact our results for the applicable periods, as well as our assessment of the trends and uncertainties that may impact our future results at the time of such filings. International, page 38 Comment No. 2 We note that although total revenue in 2012 increased over 2011 in your International segment, the majority of the growth was attributable to the first two quarters of 2012, which was followed by a significant decline in revenues in the last two quarters of 2012, continuing into the first quarter of 2013. You attribute the decline in revenue in the last quarter of 2012 to reductions in the percentage of gross billing that you retained from sales in your Local category. You also refer, on page 53, to the challenging economic conditions in Europe. In addition, in your March 31, 2013 Form 10-Q, you disclose that the decrease was also due to decreased gross billings. Please expand this discussion to provide a more detailed analysis of the factors that contributed to the decrease in revenue during the last half of 2012 and first quarter of 2013 and whether you expect this trend to continue in the future. Response: In future filings, we will provide a more detailed analysis of increases or decreases in revenue, as compared to the corresponding period of the prior year, by discussing relevant factors such as increases or decreases in gross billings and the portion of billings that we retain after paying the merchant. The discussion of these factors will be provided for individual categories (i.e., Local, Goods, and Travel and Other) to the extent that a particular category (or categories) is responsible for the increases or decreases in the period. We will also continue to evaluate whether sequential improvements or declines in the results of our operations represent a currently known trend that is reasonably likely to have a material effect on our financial condition or results of operations in future periods. However, we note that the significant sequential declines in total revenue and of third party revenue from the Local category of our International segment during the second half of 2012 did not indicate a known trend that was expected to have a continuing impact in future periods at the time we filed our Form 10-K. Those sequential declines did not continue into the following quarter, as the $261.8 million of revenue from our International segment for the quarter ended March 31, 2013 was a decrease of only Mr. Larry Spirgel June 26, 2013 Page 3 0.4% from the prior quarter and third party revenue from the Local category of our International segment increased by $11.0 million from the prior quarter. See below for an example of how the revisions discussed above would have appeared had they been made in our Form 10-Q for the quarter ended March 31, 2013 (new text is underscored and deleted text is shown as a strike-through). However, the actual disclosures provided in our future filings may differ from these revisions depending on the material factors that impact our results for the applicable periods, as well as our assessment of the trends and uncertainties that may impact our future results at the time of such filings. “International segment revenue decreased by $58.9 million to $261.8 million for the three months ended March 31, 2013, as compared to $320.7 million for the three months ended March 31, 2012. The decrease was primarily due to a $57.4 million decrease in revenue from our Local category, which was due to resulted from an $86.5 million decreased in gross billings and a reduction in the percentage of gross billings that we retained after deducting the merchant’s share to 41%lower margins on deals for the three months ended March 31, 2013, as compared to 46% in the prior yearduring the current period. The decrease in gross billings was attributable to decreased units sold in the Local category of our International segment as compared to the prior year period. The decrease in the percentage of gross billings that we retained during the three months ended March 31, 2013, as compared to the prior year period, reflects the overall results of individual deal-by-deal negotiations between our sales personnel and our merchants. We believe that those deal margins were negatively impacted by lower demand from merchants in our International segment to offer deals on our platform as compared to the prior year period. The percentage of gross billings that we retain can vary significantly from period-to-period. In our International segment, revenue from transactions in our Goods category are primarily presented on a net basis within third party revenue, as we have not typically been the merchant of record for those transactions outside of the United States.” Regarding the Staff’s comment about the reference to challenging macroeconomic conditions in Europe on page 53 of our Form 10-K, we note that the reference to those conditions was provided as an example of one of the qualitative factors that we considered in evaluating whether to conduct Step 2 of the goodwill impairment test for our EMEA reporting unit, which had a negative book value at the time of the impairment test. That discussion of macroeconomic conditions in EMEA was not characterized as one of the factors that contributed to declines in revenue in our International segment during the second half of 2012. As noted above, a variety of factors contributed to the sequential decline. We did not cite the poor economy in Europe as one of those factors as we are unsure of the impact that macroeconomic conditions in EMEA may have had on our International segment revenue throughout 2012 and the first quarter of 2013. Comment No. 3 In your fourth quarter 2012 earnings call and related earnings release, you cited several factors that affected revenue growth, including the increase in global units (surpassing the 50 Mr. Larry Spirgel June 26, 2013 Page 4 million unit mark in the fourth quarter of 2012), substantial growth in mobile transaction activity, the launch of new merchant services, and the increase in your virtual deal inventory. Consistent with our previous comment, disclose and quantify each material factor that contributed to the increase or decrease in revenue and whether they are attributable to changes in prices, volume, amount of goods or services being sold, or to the introduction of new products and services. Response: In future filings we will expand our discussion of the material factors that we believe contributed to increases or decreases in revenue for the period. However, in many cases we are unable to separately quantify the impact of each of those factors on our revenue. For example, we believe that many customers who previously purchased our deals through our email distributions now use our mobile application to browse for and purchase deals. We are unable to quantify how our mobile growth contributed to the increase in our revenue because we do not know what the purchase levels would have been had those customers been limited to our other distribution channels (i.e., email and our websites) to purchase our deals. Additionally, we believe that offering more deals to our customers by increasing the number of deals in which the merchant partner has a continuous presence on our websites and mobile applications by offering vouchers on a rolling basis for an extended period of time (sometimes referred to as our “virtual deal inventory,” “pull marketplace,” or “deal bank”) was one of the factors contributing to our revenue growth in North America. However, we are unable to quantify that impact because doing so would require us to know what our revenue would have been had we offered fewer deals to customers. As each deal we run generates a unique amount of revenue and the mix of deals offered changes every period, it is not possible to reasonably estimate how increases in our virtual deal inventory has impacted our revenue growth. As noted in the Staff’s comment, our fourth quarter 2012 earnings call and earnings release cited the increase in global units (surpassing the 50 million unit mark in the fourth quarter of 2012), substantial growth in mobile transaction activity, and the increase in our virtual deal inventory as factors that affected our revenue growth. However, while our earnings release stated “Groupon launched a number of merchant services in 2012 to strengthen relationships with local businesses, including Breadcrumb and Payments,” the launch of those services was not cited as a factor affecting our revenue growth for the current period in either our earnings release or earnings call. Rather, page 37 of our Form 10-K states “Payment processing revenue was not significant for the year ended December 31, 2012, and we do not expect it to be significant for the foreseeable future.” This disclosure was also included on page 36 of our Form 10-Q for the quarter ended March 31, 2013. In future filings, we will expand this disclosure to refer to point of sale revenue (i.e., revenue from our Breadcrumb offering) in addition to payment processing revenue to clarify that neither of those merchant services has begun to generate significant revenue. Comment No. 4 Mr. Larry Spirgel June 26, 2013 Page 5 Explain how your virtual deal inventory works, how it has transformed customer search experience or engagement, and how it has impacted revenue growth. Tell us when the revenue recognition threshold is met (i.e., if a minimum number of customers purchasing a given deal is required to exceed a predetermined threshold). Response: As discussed in response to Comment No. 3 above, virtual deal inventory represents deals in which the merchant partner has a continuous presence on our websites and mobile applications by offering vouchers on a rolling basis for an extended period of time. This pull marketplace enables our customers in North America to search for specific types of deals (e.g., steakhouse, pizza, massage, nail salon, golf lessons, yoga) on our websites and mobile applications. These ongoing deals work no differently from deals that we run for shorter periods of time, except with respect to the timing of payments to merchants. As disclosed on page 46 of our Form 10-K, we generally remit payments to the merchant on an ongoing basis throughout the term of the offering for deals that are offered for an extended period. Additionally, while we believe that offering more deals through our pull marketplace is one of the factors that has contributed to our revenue growth in North America in recent periods, we are unable to separately quantify that impact as discussed under Comment No. 3 above. In prior years, before we had established a significant customer base, our deals often specified a predetermined threshold of customer purchases that had to be met before the vouchers for that deal could be redeemed (i.e., “tipping point deals”). For deals with a tipping point provision, the customer’s credit card was not charged and no revenue or other amounts were recorded in the consolidated financial statements unless the specified threshold was met. Given the growth of our customer base in recent years, such tipping point provisions are rarely requested by our merchants and the number of such deals has been insignificant in recent periods. Additionally, we have not offered deals with tipping point provisions through our pull marketplace. We have continued to include the disclosure that we do not recognize revenue before “the number of customers who purchase a given deal exceeds the predetermined threshold (where applicable)” solely because this policy had relevance to the prior year comparative financial statements. However, we intend to remove the disclosure about meeting a predetermined threshold from our revenue recognition policy in future filings because it is no longer applicable. Non-GAAP Financial Measures, page 46 Comment No. 5 We note your statement that “When evaluating our performance, you should consider operating income (loss) excluding stock-based compensation and acquisition-related expense (benefit) net as a complement to other financial performance measures, including various cash flow metrics...” Additionally, in your most recent earnings call, you provided advice “to think about cash flow trending similarly with CSOI, or operating income less stock-based compensation, and with any increase in capex offset largely by working capital.” Since you Mr. Larry Spirgel June 26, 2013 Page 6 appear to use CSOI as a liquidity measure, please reconcile this non-GAAP measure to the most comparable liquidity measure under GAAP or advise. Response: We use operating income (loss) excluding stock-based compensation and acquisition-related expense (benefit), or “CSOI,” as a measure of the Company’s operating performance and not as a measure of liquidity. CSOI is a non-GAAP measure that comprises the consolidated total of the segment operating income (loss) of our two segments, North America and International. While we ac